POLISH FINANCIAL SUPERVISION AUTHORITY Consolidated annual report RS 2010 (In accordance with 82, section 2 of the Decree of the Minister of Finance dated 19 February 2009 Journal of Laws No. 33, point 259) for issuers of securities involved in production, construction, trade or services activities for the financial year 2010 comprising the period from 1 January 2010 to 31 December 2010 containing the consolidated financial statements according to IFRS in PLN. KGHM Polska Miedź S.A. (name of issuer in brief) publication date: 31 March 2011 KGHM Polska Miedź Spółka Akcyjna (name of the issuer) Basic materials (issuer branch title per the Warsaw Stock Exchange) 59-301 LUBIN (postal code) M. Skłodowskiej Curie 48 (street) (city) (number) (48 76) 74 78 200 (48 76) 74 78 500 (telephone) IR@BZ.KGHM.pl (e-mail) (fax) www.kghm.pl (website address) 692 000 00-13 390021764 (NIP) PricewaterhouseCoopers Sp. z o.o. (entity entitled to audit financial statements) (REGON) SELECTED FINANCIAL ITEMS year 2010 period from 1 January 2010 to 31 December 2010 in '000 PLN year 2009 period from 1 January 2009 to 31 December 2009 year 2010 period from 1 January 2010 to 31 December 2010 in '000 EUR year 2009 period from 1 January 2009 to 31 December 2009 I. Sales 17 292 590 12 119 910 4 318 397 2 792 220 II. Operating profit 5 545 338 2 679 338 1 384 811 617 274 III. Profit before income tax 5 777 550 2 873 542 1 442 800 662 015 IV. Profit for the period 4 714 863 2 328 561 1 177 421 536 461 V. Profit for the period attributable to shareholders of the Parent Entity VI. Profit for the period attributable to non-controlling interests 4 708 946 2 327 993 1 175 943 536 330 5 917 568 1 478 131 VII. Other comprehensive income 83 520 (391 155) 20 857 (90 116) VIII. Total comprehensive income 4 798 383 1 937 406 1 198 278 446 345 IX. Total comprehensive income attributable to the shareholders of the Parent Entity X. Total comprehensive income attributable to noncontrolling interest 4 792 466 1 936 838 1 196 800 446 214 5 917 568 1 478 131 XI. Number of shares issued 200 000 000 200 000 000 200 000 000 200 000 000 XII. Earnings per ordinary share (in PLN/EUR) attributable to the shareholders of the Parent Entity 23.54 11.64 5.88 2.68 XIII. Net cash generated from operating activities 5 661 275 2 720 749 1 413 764 626 814 XIV. Net cash used in investing activities (3 070 123) (1 255 747) (766 687) (289 303) XV. Net cash used in financing activities (707 497) (2 317 750) (176 680) (533 970) XVI. Total net cash flow 1 883 655 (852 748) 470 397 (196 459) At 31 December 2010 At 31 December 2009 At 31 December 2010 This report is a direct translation from the original Polish version. In the event of differences resulting from the translation, reference should be made to the official Polish version. At 31 December 2009 XVII. Non-current assets 12 414 423 9 800 634 3 134 718 2 385 627 XVIII. Current assets 8 762 900 5 089 786 2 212 686 1 238 933 XIX. Total assets 21 177 323 14 890 420 5 347 404 3 624 560 XX. Non-current liabilities 2 882 705 2 012 477 727 901 489 868 XXI. Current liabilities 3 402 839 2 302 604 859 238 560 490 XXII. Equity 14 891 779 10 575 339 3 760 265 2 574 202 XXIII. Non-controlling interest 241 106 77 082 60 881 18 763 Polish Financial Supervision Authority
KGHM POLSKA MIEDŹ S.A. GROUP CONSOLIDATED ANNUAL REPORT RS 2010 COMPRISES: 1. AUDITOR S OPINION AND REPORT ON ITS AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS 2. DECLARATION BY THE MANAGEMENT BOARD ON THE ACCURACY OF THE PREPARED CONSOLIDATED FINANCIAL STATEMENTS 3. DECLARATION BY THE MANAGEMENT BOARD REGARDING THE ENTITY ENTITLED TO AUDIT FINANCIAL STATEMENTS 4. PRESIDENT S LETTER 5. CONSOLIDATED FINANCIAL STATEMENTS 6. REPORT ON THE ACTIVITIES OF THE GROUP Lubin, March 2011
KGHM POLSKA MIEDŹ S.A. GROUP AUDITOR S OPINION AND REPORT ON ITS AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR 2010 Lubin, March 2011
Independent Registered Auditor s Opinion to the General Shareholders Meeting and the Supervisory Board of KGHM Polska Miedź Spółka Akcyjna PricewaterhouseCoopers Sp. z o.o. Al. Armii Ludowej 14 00-638 Warszawa Poland Telephone +48 (22) 523 4000 Facsimile +48 (22) 523 4040 http://www.pwc.com/pl We have audited the accompanying consolidated financial statements of the KGHM Polska Miedź Spółka Akcyjna Group (hereinafter called the Group ), of which KGHM Polska Miedź Spółka Akcyjna is the parent company (hereinafter called the Parent Company ), with its registered office in Lubin, 48 Marii Skłodowskiej-Curie Street, which comprise: (a) (b) the consolidated statement of financial position as at 31 December 2010, showing total assets and total liabilities & equity of PLN 21.177.323 thousand; the consolidated statement of comprehensive income for the period from 1 January to 31 December 2010, showing a total comprehensive income of PLN 4.798.383 thousand; (c) the consolidated statement of changes in equity for the period from 1 January to 31 December 2010, showing an increase in equity of PLN 4.316.440 thousand; (d) the consolidated statement of cash flows for the period from 1 January to 31 December 2010, showing a net increase in cash and cash equivalents of PLN 1.883.655 thousand; (e) additional information on adopted accounting policies and other explanatory notes. The Management Board of the Parent Company is responsible for preparing the consolidated financial statements and a Directors Report for the Group in accordance with the applicable regulations. The Management Board and members of the Supervisory Board of the Parent Company are required to ensure that the consolidated financial statements and the Director s Report for the Group meet the requirements set out in the Accounting Act of 29 September 1994 (uniform text, Journal of Laws of 2009, No. 152, item 1223 with further amendments, hereinafter referred to as the Act ). Our responsibility was to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with the following: (a) (b) the provisions of Chapter 7 of the Act; national standards on auditing issued by the National Chamber of Registered Auditors. TRANSLATION ONLY PricewaterhouseCoopers Sp. z o.o. is entered into the National Court Register maintained by the District Court for the Capital City of Warsaw, under KRS number 0000044655, NIP 526-021-02-28. The share capital is PLN 10,363,900. The seat of the Company is in Warsaw at Al. Armii Ludowej 14.
Independent Registered Auditor s Opinion to the General Shareholders Meeting and the Supervisory Board of KGHM Polska Miedź Spółka Akcyjna (cont.) Our audit was planned and performed to obtain reasonable assurance that the consolidated financial statements were free of material misstatements and omissions. The audit included examining, on a test basis, accounting documents and entries supporting the amounts and disclosures in the consolidated financial statements. The audit also included an assessment of the accounting policies applied by the Group and significant estimates made in the preparation of the consolidated financial statements as well as an evaluation of the overall presentation thereof. We believe that our audit provided a reasonable basis for our opinion. In our opinion, and in all material respects, the accompanying consolidated financial statements: (a) (b) (c) have been prepared in accordance with the applicable accounting principles (policies)on the basis of properly maintained consolidation documentation; comply in form and contents with the relevant laws applicable to the Group; give a fair and clear view of the Group s financial position as at 31 December 2010 and profit for the year then ended, in accordance with the International Financial Reporting Standards as adopted by the European Union. The information in the Directors Report for the year ended 31 December 2010 has been prepared in accordance with the provisions of the Decree of the Minister of Finance dated 19 February 2009 concerning the publication of current and periodic information by issuers of securities and the conditions of acceptance as equal information required by the law of other state, which is not a member state ( the Decree Journal of Laws No. 33, item 259) and is consistent with the information presented in the audited financial statements. Conducting the audit on behalf of PricewaterhouseCoopers Sp. z o.o., Registered Audit Company No. 144: Marcin Sawicki Registered Auditor of the Group, Key Registered Auditor No. 11393 Wrocław, 28 March 2011 TRANSLATION ONLY 2
Report on the consolidated financial statements for the period from 1 January to 31 December 2010 TRANSLATION ONLY
Report on the audit of the consolidated financial statements to the General Shareholders Meeting and the Supervisory Board of KGHM Polska Miedź S.A. This report contains 18 consecutively numbered pages and consists of: Page I. General information about the Group... 2 II. Information about the audit... 6 III. The Group s results and financial position... 7 IV. Discussion of consolidated financial statements components... 9 V. The independent registered auditor s statement... 17 VI. Final notes and comments... 18 TRANSLATION ONLY
Report on the consolidated financial statements for the period from 1 January to 31 December 2010 I. General information about the Group (a) (b) (c) (d) (e) (f) KGHM Polska Miedź S.A. (the Parent Company) was founded as a result of transformation of a state-owned enterprise, Kombinat Górniczo-Hutniczy Miedzi on the basis of art. 5 of the Act dated 13 July 1990 concerning the privatization of state-owned enterprises (Journal of Laws No. 51, item 298, with subsequent amendments). The Parent Company was formed on the basis of a Notarial Deed drawn up on 9 September 1991 at the Notary Public s Office No. 18 in Warsaw and registered with Rep. No. 8648/91. On 29 June 2001, the District Court for Wrocław Fabryczna, the 9 th Business Department of the National Court Register entered the Parent Company in the Commercial Register with the reference number KRS 23302. On 14 June 1993 the Parent Company was assigned a tax identification number (NIP) 692-000-00-13 for making tax settlements. On 13 August 2003 the Parent Company was assigned a REGON number 390021764 for statistical purposes. As at 31 December 2010, the Parent Company s registered share capital amounted to PLN 2.000.000.000 and consisted of 200.000.000 shares, each of PLN 10 par value. In the audited period, the Group s business activities included: metal ore mining, production of non-ferrous metals, precious metals, and salts, manufacturing copper and precious metals products, casting of light and non-ferrous metals, recovering metals accompanying copper ores, waste management, wholesale trading on the basis of direct payment or contract, geological and exploratory activities, research and technical analyses, general construction activities with respect to mining and production facilities, construction of mining machinery and equipment, transport services, production of road-building material, telecommunication and IT activities. During the year on the Parent Company s Management Board were: Herbert Wirth President Maciej Tybura I Vice President, Ryszard Janeczek Vice President, until 15 October 2010 Wojciech Kędzia Vice President since 19 November 2010 The Parent Company is an issuer of shares admitted to trading on the Warsaw Stock Exchange and in accordance with the Accounting Act it prepares its consolidated financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The Group adopted IFRS in 2005. TRANSLATION ONLY 2
Report on the consolidated financial statements as at and for the year ended 31 December 2010 I. General information about the Group (cont.) As at 31 December 2010 KGHM Polska Miedź Spółka Akcyjna Group comprise of the following entities (according to IAS 27): Entity: Type of capital relationship (% of share capital held) Method of consolidation Auditor of financial statements Type of opinion (*) KGHM Polska Miedź S.A. Parent Company Full PricewaterhouseCoopers Sp. z o.o. Unqualified Avista Media Sp. z o.o. Indirect subsidiary (100%) Full Agencja Biegłych Rewidentów Tax-2" Sp. z o.o. Biowind Sp. z o.o. Indirect subsidiary (100%) Full Not subject to audit - Bipromet Ecosystem Sp. z o.o. Indirect subsidiary (33,66%) Full Not subject to audit - Unqualified Bipromet S.A. Subsidiary (66%) Full Ernst & Young Audit Sp. z o.o. Unqualified CBJ Sp. z o.o. Subsidiary (100%) Full MDDP Audyt Sp. z o.o. Unqualified Centrozłom Wrocław S.A. Indirect subsidiary (85%) Full PricewaterhouseCoopers Sp. z o.o. DFM ZANAM-LEGMET Sp. z o.o. Subsidiary (100%) Full PricewaterhouseCoopers Sp. z o.o. Unqualified Telefonia DIALOG S.A. Subsidiary (100%) Full PricewaterhouseCoopers Sp. z o.o. Unqualified Ecoren DKE Sp. z o.o. Indirect subsidiary (100%) Full Quatro Sp. z o.o. Energetyka Sp. z o.o. Subsidiary (100%) Full PricewaterhouseCoopers Sp. z o.o. Unqualified Fadroma Serwis Remonty Sp. z o.o. w likwidacji Indirect subsidiary (98,05%) Full Biuro Ekspertyz i Badania Bilansów PIAST Sp. z o.o. The opinion has not been issued until the date of signing this report With emphasis of matter concerning the going concern risk and obligation to pass a resolution regarding going concern assumption Unqualified Fundusz Hotele 01 Sp. z o.o. Subsidiary (100%) Full BTFG Audit Sp. z o.o. Unqualified Fundusz Hotele 01 Sp. z o.o. S.K.A. Subsidiary (100%) Full BTFG Audit Sp. z o.o. Unqualified Fundusz Hotele 01 Sp. z o.o. Uzdrowiska S.K.A. Subsidiary (100%) Full BTFG Audit Sp. z o.o. Unqualified Fundusz Uzdrowiska 01 Sp. z o.o. Subsidiary (100%) Full BTFG Audit Sp. z o.o. Unqualified INOVA Sp. z o.o. Subsidiary (100%) Full Biuro Ekspertyz i Badania Bilansów PIAST Sp. z o.o. Unqualified Interferie Medical SPA Sp. z o.o. Indirect subsidiary (89,17%) Full PricewaterhouseCoopers Sp. z o.o. Unqualified Interferie S.A. Indirect subsidiary (66,82%) Full PricewaterhouseCoopers Sp. z o.o. Unqualified TRANSLATION ONLY 3
Report on the consolidated financial statements as at and for the year ended 31 December 2010 I. General information about the Group (cont.) Entity: Type of capital relationship (% of share capital held) KGHM (SHANGHAI) Copper Trading Co. Ltd. Subsidiary (100%) Full Method of consolidation Auditor of financial statements Type of opinion (*) ECOVIS Ruide Certified Public Accountants Co., Ltd. KGHM Ajax Mining Inc. Subsidiary (51%) Full Ernst & Young LLP Chartered Accountants KGHM Cuprum sp. z o.o.cbr Subsidiary (100%) Full PKF Audyt Sp. z o.o. Unqualified KGHM Ecoren S.A. Subsidiary (100%) Full PricewaterhouseCoopers Sp. z o.o. Unqualified KGHM HMS Bergbau AG Subsidiary (74,9%) Full Not subject to audit - KGHM I Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych KGHM II Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych KGHM III Fundusz Inwestycyjny Zamknięty Aktywów Niepublicznych Subsidiary (100%) Full BTFG Audit Sp. z o.o. KGHM Kupferhandelsgesellschaft m.b.h. Subsidiary (100%) Full KGHM Letia S.A. Subsidiary (85,45%) Full Subsidiary (100%) Full BTFG Audit Sp. z o.o. Unqualified Subsidiary (100%) Full Not subject to audit - Ernst & Young Wirtschaftsprufungsgesellschaft mbh Zespół Biegłych Rewidentów FABER Sp. z o.o. The opinion has not been issued until the date of signing this report The opinion has not been issued until the date of signing this report With emphasis of matter concerning valuation of shares not listed on an active market The opinion has not been issued until the date of signing this report Unqualified KGHM Metraco S.A. Subsidiary (100%) Full Ernst & Young Audit Sp. z o.o. Unqualified KGHM Polish Copper Ltd. w likwidacji Subsidiary (100%) Full Not subject to audit - KGHM TFI S.A. Subsidiary (100%) Full BTFG Audit Sp. z o.o. Unqualified Mercus Software Sp. z o.o. Indirect subsidiary Excluded Miedziowe Centrum Zdrowia S.A. Subsidiary (100%) Full Biuro Ekspertyz i Badania Bilansów PIAST Sp. z o.o. Biuro Ekspertyz i Badania Bilansów PIAST Sp. z o.o. Przedsiębiorstwo Budowy Kopalń PeBeKa S.A. Subsidiary (100%) Full Ernst & Young Audit Sp. z o.o. Unqualified Unqualified Petrotel Sp. z o.o. Indirect subsidiary (99,99%) Full MDDP Audyt sp. z o.o. Unqualified PHP Mercus Sp. z o.o. Subsidiary (100%) Full PKF Audyt Sp. z o.o. Unqualified PHU Lubinpex Sp. z o.o. Indirect subsidiary (100%) Full PMT Linie Kolejowe Sp. z o.o. Indirect subsidiary (100%) Full Kancelaria Biegłych Rewidentów Aktywa Sp. z o.o. Kancelaria Biegłego Rewidenta Bronisława Dydyna With emphasis of matter concerning contingent liabilities Unqualified Unqualified POL-MIEDŹ TRANS Sp. z o.o. Subsidiary (100%) Full Ernst & Young Audit Sp z o.o. Unqualified TRANSLATION ONLY 4
Report on the consolidated financial statements as at and for the year ended 31 December 2010 I. General information about the Group (cont.) Entity: Type of capital relationship (% of share capital held) Method of consolidation Przedsiębiorstwo Budowlane Katowice S.A. Indirect subsidiary (58,08%) Full Ernst & Young Audit Sp z o.o. Towarzystwo Ubezpieczeń Wzajemnych Cuprum Indirect subsidiary Uzdrowisko Cieplice Sp. z o.o. Indirect subsidiary (89,71%) Full Uzdrowisko Połczyn S.A. Indirect subsidiary (89,91%) Full Excluded Auditor of financial statements Type of opinion (*) FINANS-SERVIS Zespół Doradców Finansowych- Księgowych Sp. z o.o. Kancelaria Audytorska i Rachunkowa Biegły Rewident Małgorzata Wolska Auxilium Audyt Krystyna Adamus, Jadwiga Faron Spółka Komandytowa With emphasis of matter concerning the obligation to pass a resolution regarding going concern assumption Unqualified Unqualified Unqualified Walcownia Metali Łabędy S.A. Indirect subsidiary (88,96%) Full "BANKFIRM" Sp. z o.o. Unqualified Walcownia Metali Nieżelaznych Sp. z o.o. Indirect subsidiary (84,41%) Full "BANKFIRM" Sp. z o.o. Unqualified Warszawska Fabryka Platerów HEFRA S.A. Indirect subsidiary (98,5%) Full Biuro Ekspertyz i Badania Bilansów "PIAST" Sp. z o.o. Unqualified WPEC w Legnicy S.A. Indirect subsidiary (85%) Full PricewaterhouseCoopers Sp. z o.o. Unqualified Zagłębie Lubin S.A. Subsidiary (100%) Full Ernst & Young Audit Sp z o.o. Zespół Uzdrowisk Kłodzkich S.A. Indirect subsidiary (90,09%) Full Accord ab Biegli Rewidenci Sp. z o.o. Unqualified (*) Financial statements of all the entities of the Group were prepared as at 31 December 2010. With emphasis of matter concerning the obligation to pass a resolution regarding going concern assumption TRANSLATION ONLY 5
Report on the consolidated financial statements as at and for the year ended 31 December 2010 II. Information about the audit (a) (b) PricewaterhouseCoopers Sp. z o.o. was appointed registered auditor to the Group by Resolution No. 31/VII/10 of the Supervisory Board of the Group passed on 16 April 2010 in accordance with paragraph 20, point 2 of the Parent Company s Articles of Association. PricewaterhouseCoopers Sp. z o.o. and the key registered auditor conducting the audit are independent of the Group entities within the meaning of art. 56, clause 2-4 of the Act on registered auditors and their council, entities entitled to provide audit of financial statements and public supervision of 7 May 2009 (Journal of Laws 2009, No. 77, item 649). (c) The audit was conducted in accordance with an agreement signed on 25 May 2010 in the period from 28 February to 28 March 2011. TRANSLATION ONLY 6
Report on the consolidated financial statements for the period from 1 January to 31 December 2010 III. The Group s results and financial position The observations below are based on knowledge obtained during the audit of the consolidated financial statements. The consolidated financial statements do not take account the effects of inflation. The consumer price index (on a December to December basis) amounted to 3.1 % in the audited year (3.5% in 2009). KGHM Polska Miedź S.A. is the Parent Company of the Group which, in the audited year, comprised 49 subsidiaries (including 47 consolidated subsidiaries). Additionally there are two associated entities. The financial data of one of them have been presented in the consolidated financial statements under the equity accounting method. In the year prior to the audited year the Group comprised 33 subsidiaries (including 30 consolidated subsidiaries). Additionally there are two associated entities. The data of one of them were presented in the consolidated financial statements under the equity accounting method. The composition of the Capital Group and the result of changes in the Group in the audited accounting period were described in Note 4 to the Accounting policies and other explanatory information in the consolidated financial statements. As a result of correction of prior year error and subsequent measurement of provisional purchase price allocation recognised at the acquisition date of a subsidiary acquired in 2009 the data for 2009 were restated in order to maintain comparability. The changes are described in Note 2.1 to the Accounting policies and other explanatory information to the consolidated financial statements. TRANSLATION ONLY 7
Report on the consolidated financial statements as at and for the year ended 31 December 2010 III. The Group s results and financial position (cont.) The factors described below had a significant impact on the Group s profit and on its financial position as at the balance sheet date. In 2010, the Group continued the strategy adopted in previous years, which consisted of focusing on production of copper, precious metals and smelter by-products. The revenue realized on sales of copper, precious metals and smelter by-products constituted 91% of total sales revenue. As at the end of the financial year, the Group s assets amounted to PLN 21.177.323 thousand. During the year, total assets increased by PLN 6.286.903 thousand, i.e. by 42,2%. This increase was mainly financed with the profit (of PLN 4.714.863 thousand), an increase in liabilities due to valuation of derivatives (of PLN 858.627 thousand), an increase in income tax liabilities (of PLN 593.048 thousand) and an increase in trade and other payables (of PLN 518.788 thousand). In 2010 the Parent Company paid a dividend of PLN 600.000 thousand to its shareholders. The revenues amounted to PLN 17.292.590 thousand and increased by 42,7% when compared to the previous year. The Group s core activities in the current financial year consisted of production and sale of copper, precious metals and smelter by-products. This growth was mainly due to favorable conditions on international and domestic industrial goods markets, which were reflected in an increase in sales volume of copper and copper products. The additional factor for the growth was an increase of the average price of copper and silver when compared with the prior period (46,0% and 37,6% respectively). In the same period the average exchange rate of US Dollar decreased by 3,1% when compared to 2009. The revenues include also profit on foreign currencies and commodities hedge transactions amounted to PLN 142.187 thousand. The operating expenses amounted to PLN 10.602.822 thousand and increased by PLN 1.666.046 thousand i.e. by 18,7% when compared with 2009. The change was mainly due to the growth of cost of material and energy. Profitability measured with operating profit amounted to 27 % and was 8 percentage points higher than in the previous year. The change in the Group s profitability was primarily due to high prices of metals (mainly of copper) on international stock markets. Group s debt ratio and the Group s debt structure remained at comparable level to 2009. The debt ratio increased from 29% at the end of prior year to 30% at the end of the audited period. The payables turnover decreased from 26 to 24 days. The Group s liquidity changed slightly as compared with the previous year. The current ratio amounted to 2,6 (2,2 in 2009), whereas the quick ratio amounted to 1.9 (1,3 in 2009). TRANSLATION ONLY 8
Report on the consolidated financial statements as at and for the year ended 31 December 2010 IV. Discussion of consolidated financial statements components CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2010 ASSETS Note 31.12.2010 PLN 000 31.12.2009 PLN 000 * Change PLN 000 Change (%) 31.12.2010 Structure (%) 31.12.2009 Structure (%) Non-current assets Property, plant and equipment 8.553.634 7.747.112 806.522 10,4 40,4 52,0 Intangible assets 523.874 218.124 305.750 >100 2,5 1,5 Investment properties 59.760 17.164 42.596 >100 0,3 0,1 Investments in associates 1.431.099 1.315.663 115.436 8,8 6,7 8,8 Deferred tax assets 1 592.947 347.395 245.552 70,7 2,8 2,3 Available-for-sale financial assets 2 751.605 19.412 732.193 >100 3,5 0,1 Held-to-maturity investments 84.157 67.144 17.013 25,3 0,4 0,5 Derivatives 3 403.839 58.034 345.805 >100 1,9 0,4 Trade and other receivables 4 13.508 10.586 2.922 27,6 0,1 0,1 Current assets 12.414.423 9.800.634 2.613.789 26,7 58,6 65,8 Inventories 2.222.321 2.072.434 149.887 7,2 10,5 13,9 Trade and other receivables 4 2.730.658 1.531.341 1.199.317 78,3 12,9 10,3 Current corporate tax receivables 4.511 9.329 (4.818) (51,6) - 0,1 Available-for-sale financial assets 2 415.662 8.976 406.686 >100 2,0 0,1 Held-to-maturity investments 4.129 580 3.549 >100 - - Derivatives 3 297.584 263.375 34.209 13,0 1,4 1,8 Cash and cash equivalents 3.086.957 1.197.077 1.889.880 >100 14,6 8,0 Non-current assets held for sale 1.078 6.674 (5.596) (83,8) - - *) restated data 8.762.900 5.089.786 3.673.114 72,2 41,4 34,2 21.177.323 14.890.420 6.286.903 42,2 100,0 100,0 TRANSLATION ONLY 9
Report on the consolidated financial statements as at and for the year ended 31 December 2010 IV. Discussion of consolidated financial statements components (cont.) CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2010 (cont.) Note 31.12.2010 PLN 000 31.12.2009 PLN 000 * Change PLN 000 Change (%) 31.12.2010 Structure (%) 31.12.2009 Structure (%) Equity 5,11 Share capital 6 2.000.000 2.000.000 - - 9,5 13,4 Accumulated other comprehensive income 209.821 126.301 83.520 66,1 1,0 0,9 Retained earnings 12.440.852 8.371.956 4.068.896 48,6 58,7 56,2 Non-controlling interest 7 241.106 77.082 164.024 >100 1,1 0,5 Long-term liabilities 14.891.779 10.575.339 4.316.440 40,8 70,3 71,0 Trade and other payables 8 121.560 63.316 58.244 92,0 0,6 0,4 Borrowings and finance lease liabilities 173.652 120.854 52.798 43,7 0,8 0,8 Derivatives 3 711.580 61.354 650.226 >100 3,3 0,4 Deferred tax liabilities 1 133.392 56.182 77.210 >100 0,6 0,4 Liabilities due to employee benefits 1.221.794 1.183.350 38.444 3,2 5,8 8,0 Provisions for other liabilities and charges 520.727 527.421 (6.694) (1,3) 2,5 3,5 Short-term liabilities 2.882.705 2.012.477 870.228 43,2 13,6 13,5 Trade and other payables 8 1.994.579 1.575.896 418.683 26,6 9,4 10,6 Borrowings and finance lease liabilities 96.162 219.816 (123.654) (56,3) 0,5 1,5 Current corporate tax liabilities 9 672.152 79.104 593.048 >100 3,2 0,5 Derivatives 3 482.118 273.717 208.401 76,1 2,3 1,9 Liabilities due to employee benefits 110.912 106.704 4.208 3,9 0,5 0,7 Provisions for other liabilities and charges 46.916 47.367 (451) (1,0) 0,2 0,3 *) restated data 3.402.839 2.302.604 1.100.235 47,8 16,1 15,5 21.177.323 14.890.420 6.286.903 42,2 100,0 100,0 TRANSLATION ONLY 10
Report on the consolidated financial statements as at and for the year ended 31 December 2010 IV. Discussion of consolidated financial statements components (cont.) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2010 Note 2010 2009* Change Change 2010 2009 PLN 000 PLN 000 PLN 000 (%) (%) of revenues (%) of revenues Revenues 17.292.590 12.119.910 5.172.680 42,7 100,0 100,0 Cost of sales (9.612.905) (7.923.233) (1.689.672) 21,3 (55,6) (65,4) Gross profit 7.679.685 4.196.677 3.483.008 83,0 44,4 34,6 Selling costs (251.255) (230.159) (21.096) 9,2 (1,4) (1,9) Administrative expenses (738.722) (783.444) 44.722 (5,7) (4,3) (6,5) Other operating income 12 653.917 495.572 158.345 32,0 3,8 4,1 Other operating expenses 12 (1.798.287) (999.308) (798.979) 80,0 (10,4) (8,2) Operating profit 5.545.338 2.679.338 2.866.000 >100 32,1 22,1 Finance costs (48.330) (45.259) (3.071) 6,8 (0,3) (0,4) Share of profits of associates accounted for using the equity method 280.542 239.463 41.079 17,2 1,6 2,0 Profit before income tax 5.777.550 2.873.542 2.904.008 >100 33,4 23,7 Income tax expense 1 (1.062.687) (544.981) (517.706) 95,0 (6,1) (4,5) Profit for the period 10 4.714.863 2.328.561 2.386.302 >100 27,3 19,2 Attributable to shareholders of the Parent Entity 4.708.946 2.327.993 2.380.953 >100 27,2 19,2 Attributable to non-controlling interest 5.917 568 5.349 >100 0,1 - Other comprehensive income for the financial period 83.520 (391.155) 474.675 <(100) 0,5 (3,2) Total comprehensive income 4.798.383 1.937.406 2.860.977 >100 27,8 16,0 *) restated data TRANSLATION ONLY 11
Report on the consolidated financial statements as at and for the year ended 31 December 2010 IV. Discussion of consolidated financial statements components (cont.) Selected ratios characterizing the Group s financial position and results The following ratios characterize the Group s financial position and results during the audited year and its financial position as at the end of the reporting period compared with previous years: 2010 2009 * Asset ratios - receivables turnover - inventory turnover Profitability ratios - profitability of sales - gross margin - return on capital employed Liability ratios - gearing ratio - payables turnover 31 days 26 days 80 days 84 days 27% 19% 32% 22% 37% 22% 30% 29% 24 days 26 days 31.12.2010 31.12.2009 * Liquidity ratios - current ratio - quick ratio 2,6 2,2 1,9 1,3 *) for restated data TRANSLATION ONLY 12
Report on the consolidated financial statements as at and for the year ended 31 December 2010 IV. Discussion of consolidated financial statements components (cont.) Consolidated statement of financial position as at 31 December 2010 1. Deferred tax assets and liabilities At the end of 2010 the balance of deferred income tax asset amounted to PLN 592.947 thousand. The significant increase (of PLN 245.552 thousand) as compared with prior year is a consequence of valuation of derivatives and premium paid but not settled as at the end of the financial year in the Parent Company. At the end of the financial year deferred tax liabilities amounted to PLN 133.392 thousand and increased by PLN 77.210 thousand when compared to the prior year. The increase is mainly the result of the recognition of deferred tax on investments in associates accounted for under the equity method, what was described in details in Note 3.3 to the Accounting policies and other explanatory information to the consolidated financial statements. 2. Available-for-sale financial assets The value of available-for-sale financial assets amounted to PLN 1.167.267 thousand and increased by PLN 1.138.879 thousand in comparison to 2009. The balance of available-forsale financial assets as at the end of financial year 2010 consisted mainly of shares of companies listed on stock exchanges in Poland and Canada and certificates in open-end investment funds. 3. Derivatives At the end of the accounting period assets related to valuation of derivatives amounted to PLN 701.423 thousand and increased by PLN 380.014 thousand comparing to the previous year. At the end of the accounting period liabilities resulted from valuation of derivatives amounted to PLN 1.193.698 thousand and increased by PLN 858.627 thousand comparing to 2009. 4. Trade and other receivables The balance of trade and other receivables increased by PLN 1.202.239 thousand when compared to the previous year and on 31 December 2010 amounted to PLN 2.744.166 thousand. The main reason for the growth was an increase of the balance of trade receivables due to higher unit sales price compared to the previous year and longer payment period of receivables. TRANSLATION ONLY 13
Report on the consolidated financial statements as at and for the year ended 31 December 2010 IV. Discussion of consolidated financial statements components (cont.) 5. Equity 31.12.2009 Dividend paid Profit for the year 2010 Other comprehensive income Equity on valuation of the put option for employee shares Other changes in equity attributable to non-controlling interest 31.12.2010 PLN 000 PLN 000 PLN 000 PLN 000 PLN 000 PLN 000 PLN 000 Share capital 2.000.000 - - - - - 2.000.000 Other accumulated comprehensive income 126.301 - - 83.520 - - 209.821 Retained earnings 8.371.956 (600.000) 4.708.946 - (40.296) 246 12.440.852 Equity attributable to shareholders 10.498.257 (600.000) 4.708.946 83.520 (40.296) 246 14.650.673 of the Parent Company Equity attributable to non-controlling 77.082-5.917 - - 158.107 241.106 interest Total 10.575.339 (600.000) 4.714.863 83.520 (40.296) 158.353 14.891.779 TRANSLATION ONLY 14
Report on the consolidated financial statements as at and for the year ended 31 December 2010 IV. Discussion of consolidated financial statements components (cont.) 6. Share capital of the Parent Company ownership structure As at 31 December 2010 the only shareholder of the Parent Company holding more than 5% of share capital was the State Treasury. The State Treasury held 63.589.900 ordinary shares with nominal value of PLN 635.899 thousand, which constituted 31,79% of voting rights at the General Shareholders Meeting. On 8 January 2010 the State Treasury sold 20.000.000 shares of the Parent Company on the regulated market. This number of shares entitles to 10% of voting rights at the General Shareholders Meeting. 7. Equity attributable to non-controlling interest The equity attributable to non-controlling interest increased from PLN 77.082 thousand in the prior year to PLN 241.106 thousand in the current year, i.e. by PLN 164.024 thousand. This increase is mainly associated with the value of non-controlling interest in entities acquired in 2010, especially in KGHM AJAX Mining Inc. (of PLN 101.104 thousand). 8. Trade and other payables The balance of trade and other payables increased by PLN 476.927 thousand comparing to the previous year and as at 31 December 2010 amounted to PLN 2.116.139 thousand. The main reason for this growth was an increase of trade payables, including liabilities related to purchasing of fixed and intangible assets. 9. Current income tax liabilities On the date ending the financial period the balance of current corporate tax liabilities amounted to PLN 672.152 thousand and increased by PLN 593.048 thousand when compared to the prior financial period. This growth was associated with higher profit generated by the Parent Company in 2010. 10. Reconciliation of the profits of the consolidated companies with the Group s consolidated profit 31.12.2010 PLN 000 (a) Profit of the Parent Company 4.568.589 Sum of profit or loss of the consolidated companies 112.543 Total 4.681.132 (b) Total consolidation adjustments 27.814 Profit of the Group attributable to the shareholders of the Parent 4.708.946 Company (c) Profit attributable to non-controlling interest 5.917 Profit of the Group 4.714.863 TRANSLATION ONLY 15
Report on the consolidated financial statements as at and for the year ended 31 December 2010 IV. Discussion of consolidated financial statements components (cont.) 11. Reconciliation of the net assets of the consolidated companies with the Group s consolidated net assets 31.12.2010 PLN 000 (a) Net assets of the Parent Company 14.456.477 Net assets of subsidiaries (consolidated) 3.732.402 Total net assets 18.188.879 (b) Elimination of share capitals of subsidiaries (2.980.147) (c) Elimination of other equity (344.767) (d) Other consolidation adjustments 27.814 Consolidated net assets of the Group 14.891.779 Consolidated statement of comprehensive income for the period from 1 January to 31 December 2010 12. Other operating income and expenses The loss on other operating activity increased by PLN 640.634 thousand comparing to the prior year and amounted to PLN 1.144.370 thousand as a result of recognition of result on settlement and valuation of derivatives. TRANSLATION ONLY 16
Report on the consolidated financial statements as at and for the year ended 31 December 2010 V. The independent registered auditor s statement (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) The Management Board of the Parent Company provided all the information, explanations, and representations required by us in the course of the audit and provided us with a representation letter confirming the completeness of the information included in the consolidation documentation and the disclosure of all contingent liabilities and post-balance-sheet events which occurred up to the date on which that letter was signed. The scope of the audit was not limited. The consolidation documentation was complete and accurate and it is stored in a manner ensuring its proper safeguarding. The accounting policies and disclosures specified by the Parent Company s Management complied with the International Financial Reporting Standards as adopted by the European Union in all material respects. There were no changes to the accounting policies compared with the previous year. The calculation of goodwill and the excess of the acquirer s share in the fair value of identifiable assets, liabilities and contingent liabilities of the acquiree over the acquisition cost and their recognition in the consolidated financial statements complied with IFRSs as adopted by the European Union in all material respects. The consolidation of equity items and the determination of minority interests were carried out properly in all material respects. The elimination of mutual balances (receivables and payables) and transactions (revenue and costs) of the consolidated entities were carried out in accordance with the IFRSs as adopted by the European Union in all material respects. Eliminations of gains/losses unrealized by the consolidated entities included in the value of assets and in respect of dividends were conducted in accordance with the IFRSs as adopted by the European Union in all material respects. The impact of the disposal or partial disposal of shares in subordinated entities was accounted for properly in all material respects. The Notes to the consolidated financial statements present all the material information required by the IFRSs as adopted by the European Union. The information in the Directors Report for the year ended 31 December 2010 has been prepared in accordance with the provisions of the Decree of the Minister of Finance dated 19 February 2009 concerning the publication of current and periodic information by issuers of securities and the conditions of acceptance as equal information required by the law of other state, which is not a member state (Journal of Laws No. 33, item 259) and is consistent with the information presented in the audited financial statements. The consolidated financial statements for the previous year were audited by Ernst&Young Audit Sp. z o.o. The independent registered auditor issued an unqualified opinion. The consolidated financial statements of the Group as at and for the year ended 31 December 2009 were approved by Resolution No. 20/2010 passed by the General Shareholders Meeting of the Parent Company on 17 May 2010, filed with the National Court Register in Wrocław on 20 May 2010 and published in Monitor Polski B No. 1600 on 3 September 2010. TRANSLATION ONLY 17
VI. Final notes and comments PricewaterhouseCoopers Sp. z o.o. Al. Armii Ludowej 14 00-638 Warszawa Poland Telephone +48 (22) 523 4000 Facsimile +48 (22) 523 4040 http://www.pwc.com/pl This report has been prepared in connection with our audit of the consolidated financial statements of the KGHM Polska Miedź Spółka Akcyjna Group, of which KGHM Polska Miedź Spółka Akcyjna with its registered office in Lubin, 48 Marii Skłodowskiej-Curie Street is the Parent Company. The audited consolidated financial statements comprised: (a) (b) the consolidated statement of financial position as at 31 December 2010, showing total assets and total liabilities & equity of PLN 21.177.323 thousand; the consolidated statement of comprehensive income for the period from 1 January to 31 December 2010, showing a total comprehensive income of PLN 4.798.383 thousand; (c) the consolidated statement of changes in equity for the period from 1 January to 31 December 2010, showing an increase in equity of PLN 4.316.440 thousand; (d) (e) the consolidated statement of cash flows for the period from 1 January to 31 December 2010, showing a net increase in cash and cash equivalents of PLN 1.883.655 thousand; additional information on adopted accounting policies and other explanatory notes. The consolidated financial statements were signed by the Management Board of the Parent Company and the person responsible for maintaining the accounting records in Parent Company on 28 March 2011. This report should be read in conjunction with the Independent Registered Auditor s Opinion to the General Shareholders Meeting and the Supervisory Board of the KGHM Polska Miedź Spółka Akcyjna Group, signed on 28 March 2011, concerning the above-mentioned financial statements. The opinion is a general conclusion drawn from the audit and involves assessing the materiality of individual audit findings rather than being a sum of all the evaluations of individual consolidated financial statements components. This assessment takes account of the impact of the facts noted on the truth and fairness of the consolidated financial statements as a whole. Conducting the audit on behalf of PricewaterhouseCoopers Sp. z o.o., Registered Audit Company No. 144: Marcin Sawicki Registered Auditor of the Group, Key Registered Auditor No. 11393 Wrocław, 28 March 2011 TRANSLATION ONLY 18 PricewaterhouseCoopers Sp. z o.o. is entered into the National Court Register maintained by the District Court for the Capital City of Warsaw, under KRS number 0000044655, NIP 526-021-02-28. The share capital is PLN 10,363,900. The seat of the Company is in Warsaw at Al. Armii Ludowej 14.
KGHM POLSKA MIEDŹ S.A. GROUP DECLARATION BY THE MANAGEMENT BOARD ON THE ACCURACY OF THE PREPARED CONSOLIDATED FINANCIAL STATEMENTS Lubin, March 2011
DECLARATION BY THE MANAGEMENT BOARD OF KGHM POLSKA MIEDŹ S.A. ON THE ACCURACY OF THE PREPARED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS According to our best judgement the annual consolidated financial statements and the comparative data have been prepared in accordance with accounting principles currently in force, and give a true, fair and clear view of the financial position of the KGHM Polska Miedź S.A. Group and the profit for the period of the Group. The annual report on the activities of the Group presents a true picture of the development and achievements, as well as the condition, of the KGHM Polska Miedź S.A. Group, including a description of the basic exposures and risks. SIGNATURES OF ALL MEMBERS OF THE MANAGEMENT BOARD Date First, Last name Position/Function Signature 28 March 2011 Herbert Wirth President of the Management Board 28 March 2011 Maciej Tybura I Vice President of the Management Board 28 March 2011 Wojciech Kędzia Vice President of the Management Board SIGNATURE OF PERSON RESPONSIBLE FOR PARENT ENTITY ACCOUNTING Date First, Last name Position/Function Signature 28 March 2011 Ludmiła Mordylak Chief Accountant of KGHM General Director of Accounting Services Center Translation from the original Polish version
KGHM POLSKA MIEDŹ S.A. GROUP DECLARATION BY THE MANAGEMENT BOARD REGARDING THE ENTITY ENTITLED TO AUDIT FINANCIAL STATEMENTS Lubin, March 2011
DECLARATION BY THE MANAGEMENT BOARD OF KGHM POLSKA MIEDŹ S.A. REGARDING THE ENTITY ENTITLED TO AUDIT FINANCIAL STATEMENTS The entity entitled to audit financial statements, and which has audited the annual consolidated financial statements, was selected in compliance with legal provisions. This entity, as well as the certified auditors who have carried out this audit, have met the conditions for issuing an impartial and independent audit opinion, in compliance with appropriate legal provisions and professional standards. SIGNATURES OF ALL MEMBERS OF THE MANAGEMENT BOARD Date First, Last name Position/Function Signature 28 March 2011 Herbert Wirth President of the Management Board 28 March 2011 Maciej Tybura I Vice President of the Management Board 28 March 2011 Wojciech Kędzia Vice President of the Management Board SIGNATURE OF PERSON RESPONSIBLE FOR PARENT ENTITY ACCOUNTING Date First, Last name Position/Function Signature 28 March 2011 Ludmiła Mordylak Chief Accountant of KGHM General Director of Accounting Services Center Translation from the original Polish version
KGHM POLSKA MIEDŹ S.A. GROUP PRESIDENT S LETTER Lubin, March 2011
Dear Shareholders, It is with unconcealed satisfaction that I present you with the Consolidated Annual Report of the KGHM Polska Miedź S.A. Group for 2010. On behalf of the Management Board of KGHM Polska Miedź S.A., I present this document to our shareholders, investors, other participants of the capital market and remaining stakeholders. This was an exceptional year, rich with numerous successes. Above all, the financial results were exceptional. The Group earned revenues from sales of PLN 17.3 billion, exceeding 2009 sales by 40%. Profit amounted to PLN 4.7 billion, and was double that of 2009. This is the highest result in the history of the Group, and was primarily due to the excellent results achieved by the Parent Entity. We took full advantage of favourable conditions the record high copper and silver prices on global metals markets. In 2010, the KGHM Group continued to realise a strategy aimed at increasing shareholder value. With respect to the strategic area of increasing the effectiveness of the Group, apart from important organisational activities and modernisation investments in the Parent Entity KGHM Polska Miedź S.A., we undertook realisation of important projects with respect to Group companies which directly provide services to the core business: Zanam-Legmet Sp. z o.o., PeBeKa S.A., Energetyka Sp. z o.o. the effects achieved in 2010 led among others to stabilisation of the unit cost of electrolytic copper production from internal concentrates at a level lower than the result recorded in 2008. Realising another fundamental of the Group's strategy development of the resource base and mined production from low-cost foreign projects we made our first acquisition. Together with a Canadian partner, Abacus Mining & Exploration Corporation, we founded a company with majority interest held by KGHM Polska Miedź S.A. to realise a copper and gold mining project from the Afton-Ajax deposit in British Columbia in Canada. This is the first step in realising the strategic goal of the achievement by the KGHM Group of total production of 700 thousand tonnes of copper in concentrate in 2018. Having identified the power sector as an attractive direction for investment to realise the strategy of diversifying revenues, taking into particular consideration the significance of the supply of electrical power for the copper business, KGHM Polska Miedź S.A. made an equity investment in the company TAURON Polska Energia S.A. and became one of its main shareholders. The task, among others of restructuring the KGHM Group, was performed by the company KGHM TFI S.A. Three Closed-End Investment Funds were founded, in which KGHM Polska Miedź S.A. acquired investment certificates. The activities of KGHM TFI S.A. in 2010 included commencing the process of integrating regional assets in the hotel-spa sector (shares were acquired in three spa companies operating in Lower Silesia) from INTERFERIE S.A., controlled by us. KGHM Polska Miedź S.A., together with the other Polish shareholders of Polkomtel S.A., defined a model of cooperation with respect to the potential sale of the shares held in this company. Preparatory work carried out in 2010, aimed at offering the shares of Polkomtel S.A. for sale, will continue in 2011. The presence of the products of KGHM on the Chinese market and the many years of cooperation with Chinese partners led to the founding of the subsidiary KGHM (Shanghai) Copper Trading Co., Ltd. with its registered head office in Shanghai. This creates the possibility not only of increasing sales to China of the copper produced by the KGHM Group, but also of increasing the percentage of Chinese producers in supplying materials and equipment to the production divisions and companies of the KGHM Group.
In 2011, we will continue to realise a strategy aimed at increasing the value of KGHM for shareholders. We are planning further investments in low-cost mining assets, and the continuation of work aimed at commencing the mining project Afton-Ajax in Canada. Projects will continue to be realised related to increasing effectiveness and controlling the operating costs of the production divisions and companies of the Group. Activities will continue aimed at restructuring the Group. The record financial results earned in 2010 by the KGHM Polska Miedź S.A. Group, as well as the strategic projects commenced and continued in the Group, permit a calm and optimistic view of the future, providing a solid basis for further growth in shareholders value. On behalf of the Management Board and myself, I wish to sincerely thank all those, thanks to whom we achieved in 2010 so very much our shareholders, the members of the Supervisory Board and all of the employees of the KGHM Polska Miedź S.A. Group. Herbert Wirth President of the Management Board Lubin, 28 March 2011
KGHM POLSKA MIEDŹ S.A. GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR 2010 Lubin, March 2011
Table of contents to the consolidated financial statements Note Page Consolidated statement of financial position 3 Consolidated statement of comprehensive income 4 Consolidated statement of changes in equity 5 Consolidated statement of cash flows 6 Accounting policies and other explanatory information 1. General information 7 2. Main accounting policies 8 2.1 Basis of preparing financial statements 8 2.2 Accounting policies 13 3. Important estimates and assumption 36 3.1 Useful life of property, plant and equipment 36 3.2 Financial instruments 36 3.3 Investments in telecom assets being considered for sale 37 3.4 Provisions 38 3.5 Deferred tax assets/liabilities 38 4. Composition of the KGHM Polska Miedź S.A. Group subsidiaries 39 5. Information on business segments 49 6. Property, plant and equipment 55 7. Intangible assets 59 8. Investment property 61 9. Investments in associates 61 10. Available-for-sale financial assets 62 11. Held-to-maturity investments 63 12. Derivatives 64 13. Trade and other receivables 68 14. Inventories 69 15. Cash and cash equivalents 70 16. Non-current assets held for sale 70 17. Share capital 70 18. Accumulated other comprehensive income 71 18.1 Accumulated other comprehensive income components 72 19. Retained earnings 72 20. Changes in equity attributable to non-controlling interest 72 20.1 Other changes in equity attributable to non-controlling interest 73 21. Trade and other payables 74 22. Borrowings and finance lease liabilities 75 22.1 Borrowings 75 22.2 Finance lease liabilities 77 23. Collateral for the repayment of liabilities 77 24. Deferred tax 78 25. Employee benefits 81 26. Provisions for other liabilities and charges 83 27. Impairment losses 86 28. Sales 88 29. Expenses by nature 89 30. Employee benefits expenses 89 31. Other operating income 90 32. Other operating costs 91 33. Finance costs 91 34. Financial instruments 92 34.1 Carrying amount 92 34.2 Fair value 94 34.3 Items of income, costs, profit and losses recognised in profit or loss by category of financial instruments 95 34.4 Transfers not qualified for de-recognition 97 34.5 Situations concerning financial instruments which did not occur in the Group 97 34.6 Financial instruments recognised at fair value in the consolidated statement of financial position 97 35. Financial risk management 99 35.1 Market risk 99 35.2 Liquidity risk and capital management 111 35.3 Credit risk 112 36. Share of profits/losses of associates accounted for using the equity method 117 37. Income tax 117 38. Earnings per share 117 39. Dividend paid and proposed for payment 117 40. Notes to the consolidated statement of cash flows 118 41. Related party transactions 119 42. Remuneration of entity entitled to audit the financial statements and of entities related to it 125 43. Liabilities due to operating leases not recognised in the consolidated statement of financial position 125 44. Contingent assets and liabilities 126 45. Employment structure 127 46. Social Fund assets and liabilities 127 47. Government grants 127 48. Subsequent events 128 Translation from the original Polish version 2/183